Companies that issue credit cards and the like find themselves in an increasingly competitive environment. In order to compete more effectively, these companies look for an edge: they aggressively market their respective products and continue to look for innovative methods to attract and retain desirable consumers. Credit card solicitations find their way to consumers on an almost daily basis: through direct mail, telemarketing, and email. Nearly three billion credit card offers are mailed to Americans each year. This deluge of solicitations indicates the hunger these companies have for this business, and the marketers continue to search for unique ways to capture consumers, turning them into customers, and to capture as many highly desirable consumers as possible.
The value of a credit card program depends greatly on how many consumers use the card, the dollars transacted, what kind of balances they maintain and at what percentage rate, default rates, and the value of the data base of information generated by such a program. Therefore, the credit card companies look for well-heeled consumers that will use the card, maximize the dollars transacted, maintain balances at higher rates, and pay their bills in a timely manner.
In trying to attract and maintain desirable consumers in this highly competitive environment, these credit card issuers target specific populations that can be marketed to successfully. The opening thrust of these campaigns is to get consumers to apply. The initial contact companies have with these consumers almost always comes in the form of an advertisement, so the value of the card needs to be quickly understood by the targeted population. This card must demonstrate a clear and immediate benefit. In order to separate one company's credit card from the clutter of other solicitations that card's benefits must be understandable in the first few moments the consumer comes into contact with the card's advertisement. The benefits must be apparent and instantly recognizable. This need for instant recognition requires that the card avoid complexity. Therefore, the success of the card in building a customer base hinges on the card's advantages being simple and uncomplicated.
The short term goal of a credit card company is to sign up desirable consumers, and this is accomplished through the advertising of benefits that are perceived as valuable and are clearly and instantly recognizable. The long-term goal is to keep consumers using the card by re-enforcing the perception of value. If a program is cumbersome to work with, the value of the program will lessen in the mind of the consumer. And if the benefit(s) of the program do not continue to be perceived highly, the consumer becomes motivated to switch cards. Therefore, to accomplish both the short and long term goal, the credit card program needs to be simple, allowing for an instantly recognizable benefit to the consumer, and the benefit needs to have a long lasting value that is attainable without undue effort by the consumer.
One group of consumers successfully marketed to today are those that carry balances, and the success derives from simplicity. Since the income streams from credit card balances carrying high interest rates are very attractive to companies, these companies simply hawk low introductory interest rates that are good for a limited time frame. They hope the customer will remain with them after this ‘teaser’ rate expires. For example, many companies mail solicitations advertising on the envelopes low introductory rates such as 2.9% good for a short time frame such as six months. These low interest rates, compared to the higher double-digit interest rates normally associated with credit cards, are immediately attractive to the balance-carrying consumer. Companies have found success in signing up these consumers because the main feature and appeal of the card is simply the low interest rate. But the shortcomings of this approach are that the low interest rate only lasts so long, and when the low rate ends the cardholder is motivated to switch cards. There are so many companies hawking this low ‘teaser’ rate and they've been hawking them for so long now that consumers are confident that when their ‘teaser’ rate expires, others will be available. These consumers will sign up with the intention of keeping their cards only during this introductory rate period and, hopefully, jump to another card when the low rate expires. Other shortcomings are that this segment of the population is limited to those that carry balances, and these consumers may not be the most desirable customer base for a credit card company.
Another method for attracting consumers, besides offering low interest rates, is through a reward system. In this, consumers earn rewards by using their credit cards. The more the consumer uses the card, the more ‘points’ or ‘credits’ or ‘miles’ or ‘dollars’ (herein called “points”) earned and these are earned without apparent extra cost to the cardholder.
Credit card reward systems abound, each trying to create a successful market for themselves. The reward offers vary: cash back, free gifts and gift certificates, airline tickets, movie rentals, travel, theme park benefits, casino cash, and more. The short-term success of these cards requires signing up consumers. The long-term success requires keeping them. One key component to keeping consumers using a credit card with rewards is the continuance of the consumers' perception that the rewards are valuable, even after a reward is claimed.
One credit card reward system that markets somewhat successfully to a desirable target population provides awards for free airline travel. In marketing airline awards, the marketers can take advantage of the familiarity consumers have with the airline award programs. These programs, though somewhat complex, have been around for years so consumers already know not only that they must attain thresholds by amassing ‘miles’ through credit card use, but they also know the approximate thresholds necessary for the awards. This simplifies the marketing of these cards by allowing the advertisements to tout ‘bonus miles’ for signing up and starting to use the card. The ‘bonus miles’ are an instantly recognizable benefit to this target population.
The shortcomings of this program are: that the credit card companies' market is limited to those wanting to fly for free; a consumer's use for airline travel may change before accumulating enough ‘miles’ to fly for free; the selection of airlines available for free flights may be limited; the participating airlines may change their programs; and airlines may go out of business. Some of these conditions may leave a consumer with unused credits that could have been put to better use and the cardholder viewing the process as wasteful. Moreover, once a free flight is earned, the process involved in claiming and using the award can be cumbersome. The consumer may have to contend with blackout dates for travel, limited seating on each flight for passengers with flight awards, expiring ‘miles’, changing programs, etc. This can also motivate a consumer to change cards. Also, the consumer may earn a free flight, use the award, and notice that the cost to fly was low, changing the consumer's perception of the value of the free flight. In any of these examples, the consumer may become less enamored with the idea of earning free flights and decide to switch cards.
Other reward cards that have proven somewhat successful are the cards that offer rebates good on automobile purchases or leases. Two such cards are the GM Card and Citibank's Drivers Edge Card. These cards have some success in signing up consumers: consumers wanting a new car can use this card to reduce the car's cost. With the GM Card, a consumer is awarded points good towards the purchase or lease of a new GM car, or good towards airline flights or other awards that are part of this card's program. With Citibank's Drivers Edge Card, the consumer earns points good towards the purchase of any new car. The shortcomings of both cards are that they are desirable only to those wanting a new car and they have maximum rebates allowable per new car. GM's program maximum is $3,500, and depending on the model of the car desired, the ‘Vehicle Redemption Allowance’ may be even lower. The maximum allowable on the Citibank card is $1,500 per car. These maximums not only limit the amount of money the cardholder may save, but if there are points left over this may also appear wasteful. Another potential for wastefulness stems from the card's point expirations: seven years with the GM Card and three years with Citibank's. The wastefulness or the potential for wastefulness could upset a cardholder enough to motivate them to switch cards or to never sign up for the card in the first place. Also, the cardholder may find the redemption process cumbersome and anxiety producing, or they may not like the car they get, or they have no plans to get another car, thus reducing or eliminating the incentive to keep the card, motivating the consumer to switch cards.
Other shortcomings specific to the GM card are that only GM cars can be purchased or leased, thus limiting the appeal to consumers wanting GM vehicles. And the shortcomings of the GM Card's airline rewards are similar to the airline reward program shortcomings already mentioned. As for the consumer earning gifts or other awards within the GM Card reward program, this would be difficult to market to prospective cardholders. Although similar to the airline rewards in that they must reach certain thresholds to earn the reward, the consumer is not as familiar with these rewards and the thresholds necessary to earn them. This degree of complexity would make marketing these benefits in this highly competitive market difficult. Also, these rewards are limited in scope and don't appeal to everyone. And, again, the redemption process may prove cumbersome, unused points may be viewed as wasteful, and the rewards may be a disappointment after claiming them, lessening the perception of the value of the card and motivating the consumer to switch cards.
In the case of Gateway Computer's reward system, the consumer earns ‘Moola Dollars’ good for Gateway computers and computer products. The Gateway Moola Master Card Credit Card offers a 1% rebate on all transactions, with the rebate dollars converting into Moola Dollars. As each 25 Moola Dollars increment is attained, the Moola Dollars are mailed out to the cardholder. These are then good for the purchase of Gateway computers and equipment. Moola Dollars are good for five years after issuance.
The shortcomings of the Gateway card are that the consumer must be motivated to own Gateway computers or products, limiting the market for this card. Also, the Moola Dollars have time constraints, and have thresholds that must be met, creating the potential for unused earnings and a perception of wastefulness by the consumer. Any wastefulness or disappointment in the products or lack of need for Gateway products can motivate the consumer to switch cards.
The Salomon Smith Barney MasterCard FMA Card awards one point for each dollar spent. The points are redeemable for many awards such as flights on different airlines, gifts and gift certificates, and other goods and services. Unpaid balances can be paid by a stock trading account that is linked with the card. The stock account borrows money on margin to pay the bill, usually at rates close to the Prime Rate. Because this card offers free flight rewards, the marketing of this card could be easy, however, the shortcomings of this card are that it requires a Financial Management Account with Smith Barney, thus limiting the available market. And again, the airline awards have shortcomings that have already been mentioned as have the shortcomings on the other rewards such as gifts, gift certificates and other rewards in this card's system.
Other cards that are simple and somewhat marketable are the cash rebate cards. The cards simply rebate a percentage of transactions to the cardholder. The Discover Card and the American Express Platinum Rebate Card offer a cash rebate paid annually. The amount of rebate can vary: different thresholds have different percentages of rebate with the higher thresholds paying higher percentages. The highest rebate with the Discover Card is 1%; the highest rebate with the American Express Platinum Rebate Card is 2%, but only if the consumer is carrying a balance. Otherwise, the maximum is 1.5%.
The shortcomings of the Discover Card and the American Express Platinum Rebate Card are that the rebates occur only once per year at a specified anniversary date and that the rebate percentage varies due to transaction thresholds. Some consumers, when they apply, may believe that the rebate is at the percentage quoted. The percentage usually quoted is the maximum, but that maximum threshold may take a long time to reach, if ever, because the next annual cycle restarts the transacted amounts at zero. The consumer may feel misled and frustrated by this. Also, with the rebate being paid only once per year, the rebate, as it accumulates, doesn't earn interest, thus depriving the consumer of potential earnings. Lastly, although the cash rebate can be used for useful purposes, when the cash rebate check arrives it can be spent wastefully as well. Wasteful use of a cash rebate, as well as the other shortcomings mentioned, may lead a consumer to perceive the card as less valuable than before and switch to one with a higher perceived value.
Another program rewards the consumer with U.S. Savings Bonds. This card markets to consumers wanting to save for college. Points accumulate at the rate of one per dollar transacted, and for every 2500 points the primary cardholder gets a $25 Series EE U.S. Savings Bond. One advantage of using the bonds for college education is that the earnings may be exempt from not only state and local taxes, but federal taxes as well. The shortcomings here are that the rewards are limited to savings bonds, and even though the bonds are targeted for college expenses, there are instances that may lead to wastefulness, real and perceived, motivating the consumer to switch cards. First, the consumer has the ability to use them for any purpose, even wasteful expenditures. Second, the points, prior to the issuance of the bond, do not earn interest, depriving the consumer of potential earnings. Lastly, the bonds can only be redeemed after six months of the issue date, and even though they earn interest during this period, the consumer may have a better use for the funds.
Another shortcoming is that the bonds can only be issued to the primary cardholder, and the federal tax break only applies for tuition and expenses at post-secondary institutions and only for the cardholder or the cardholder's spouse or any dependent, and the bond must be redeemed in the same calendar year that the tuition and fees are paid. The marketing of this program appears easy at first, but because of the lack of familiarity for consumers and complications inherent in the redemption/tax exemption process, the benefits may not be instantly recognizable to some consumers. And even though this is a desirable population to target, the complications of the program may limit the number of consumers that apply. Also, some consumers may not have a need for secondary education for themselves or their immediate family; and because the bonds reach maturity in 18 years, the full value of the bonds may not be realized when they are needed or they may never be needed at all, thus depriving the consumer of an earnings and raising the appearance of wastefulness. Finally, a family may have a child, and participate in this bond reward program for four or five years before assuming that any more bonds will not have the value desired. Any wastefulness, perceived or otherwise, will motivate the consumer to switch cards.
Another cash rebate card with interesting features is the TD Waterhouse Investors Prime Credit Card. With this card, a 1% rebate on all purchases is applied as cash credit to the consumer's TD Waterhouse Brokerage Account. These cash credits accumulate, don't earn interest until they become available, and become available in January. They become available for a variety of uses: a consumer may request a check to be mailed to them, or the cash becomes available within the TD Waterhouse Brokerage Account system. Uses for the cash within the system may be for stock purchases, paying bills, other investments, etc.
Even though the marketing of the cash rebate is simple, the shortcomings for this card are that the market is limited to those with a TD Waterhouse Brokerage Account. Also, cash credits from transactions sit in an account not earning interest, depriving the consumer of potential earnings, and even though the consumer may eventually use the cash rebate to pay bills including a mortgage, the system does not promote this use. The cash rebate may be used foolishly. Foolish or wasteful use of a rebate may lead a consumer to switch to another card, possibly one that limits the rebate uses to ones that are perceived as more practical.
The NetBank Platinum Visa card is another cash rebate card that rebates as much as 5% from all purchases through select online merchants. The advantage here is that the consumer gets the rebate monthly, but the rebate simply pays part of the credit card bill. The shortcomings of this card are that all rebates stem only from purchases from select online merchants. Also, the cardholder may have better use for the rebate. Should the cardholder become frustrated by the limited selection of online merchants and their merchandise, or should the cardholder perceive that the rebates would be more useful and less wasteful elsewhere, the cardholder will be motivated to switch cards.
Other credit cards that provide a discount on the monthly bills and are easily marketed are the ‘instant’ discount merchant credit cards. These offer a discount of about 10% on all purchases made the first day of purchases on a new credit card account. In most cases, the discount appears on the first bill the consumer receives. A valuable enticement is the instant approval at the cash register for desirable consumers who don't yet have that merchant's credit card. And although the value is instantly recognizable to the consumer, the shortcomings of this card program are that the card's market is limited to those that shop at that establishment, and the card can only be used at that merchant. Also, consumers may only want to use the card once and that for the first day of purchases because of the ‘first day only’ constraint.
Some of these merchants may offer, after that ‘first day only’ discount, ‘instant’ discounts of 10% ‘for this week only’. Again, a shortcoming is that the cardholder may only want to use the card during this discount period. Since use of this card, at times outside of these discounts, offers no reward to the cardholder, the cardholder will be motivated to switch to another card even for purchases at that establishment.
Reward programs for credit cards abound. The credit card business has proliferated to nearly 7,000 credit card issuers with the average household having four credit cards. The competition is rife with reward programs, all having a similar formula: transactions yield points, and these accumulate until thresholds are met and rewards claimed.
A tactic for helping the cardholder attain thresholds faster is through the sharing of an account with someone else. With more cardholders' transactions, points accumulate faster and thresholds are reached sooner. The shortcomings of sharing an account with someone else in order to accumulate points faster, are that the maximum number of cardholders per account is usually limited to a maximum of three or four. And those others on the account share not only the points, but also share the liabilities and the credit limit. If these cardholders reach the credit limit, this may limit further purchases and the potential for more points. By sharing the liabilities, should one cardholder not pay their share due to job loss or illness or irresponsibility, all other cardholders on that account are each fully liable for paying the bill.
Other credit cards that have some market appeal are those linked to donations. These cards also carry a marketable concept that is simple: use the card and donate money to a charity at no extra cost to the cardholder. The Working Assets Visa or MasterCard, donates ten cents each time the card is used to nonprofit groups working for peace, human rights, equality, education and the environment. This card also carries a cash rebate feature. If the cardholder uses this credit card to purchase items through merchants at ShopForChange.com, the cardholder can earn a rebate from 1-5% of the transaction amount. The shortcomings of this card are that the charitable options are limited and may not appeal to the consumer and the funds donated as a result of card use carry no tax benefit for the cardholder. Also, the cash rebates are paid annually and the credits sit in the account without earning interest. This deprives the cardholder of potential earnings. Other shortcomings are that the perceived value of the charitable donations and the cash rebate may change, motivating the cardholder to switch cards.
The Elton John AIDS Foundation Visa Credit Card donates money to this charity with every new account opened and every purchase made. Another card, the Pet Assure Master Card, donates a percentage of all purchases, balance transfers, and cash advances each month to participating animal organizations. It also offers discounts at participating veterinarians and other pet care providers. One other, the AKC Visa donates to the American Kennel Club, transactions translate into donations. The First USA Green Mountain.com Platinum Visa Card donates a portion of each transaction to promote wind or solar power.
The shortcomings of these cards are that the charitable options are limited and may not appeal to the consumer masses, and the funds donated as a result of card use carry no tax benefit for the cardholder. Also, as in the case of the Pet Assure Master Card, the perceived value of donating money for animal causes and the value of discounts for pet care may wane when the pet dies or the feelings for the pet changes. These shortcomings may lead to the consumer switching cards.
Other separate art, apparently viewed separately, comes from the mortgage arena, where there have been attempts to capture and keep consumers through free flight reward programs. Two such programs offer ‘miles’ for transacting a mortgage. Companies such as North American Mortgage Company and Countrywide Mortgage credit 1,000 miles for every $10,000 financed. The marketing of this program seems simple, and getting a mortgage shopper to examine the offer seems likely. But this program gets complicated because the consumer will want to compare the mortgage rate and costs in order to determine the value of the benefits. The shortcomings of these mortgage reward programs are that they are complicated and take time for the consumer to ascertain whether they're worthwhile, making the marketing of such a program more difficult. Also, these offers are limited to those looking to buy or refinance a property. And the shortcomings associated with flight reward programs already mentioned in connection with credit cards, applies here as well.
Other mortgage businesses with related art features are those that promote a more rapid pay down of the mortgage balance. These programs have different names, the most popular name being ‘The bi-weekly mortgage’. A program being marketed to it's clientele comes from Washington Mutual Bank is named of the program is the ‘Equity Accelerator Program’. Here the consumer, who has a Washington Mutual mortgage, signs up and allows for an automatic debit to occur every two weeks. The debits go into an account that automatically pays the monthly mortgage payment on the due date. Because some months have more than four weeks in them, by the end of the year the consumer has enough money in the account to make an extra mortgage payment. By making 13 full mortgage payments in a year instead of 12, the mortgage principle balance is reduced faster than if the consumer followed the regular payment schedule, paying off a 30 year loan in about 24.5 years. The shortcomings of this program are that the program costs $295 to sign up and carries a $5 monthly fee. Also, the payments come out of the consumer's pocket, not from a credit card reward program that generates payments at no cost to the consumer.
There have been other bi-weekly mortgage programs offered, but these seem to have declined in popularity because the payments went from the consumer to a third party company other than the mortgage servicer, that would collect money from the consumer with the agreement to send to the mortgage servicer the payments correctly and on time. However, at times the payments were late, wrong, or non-existent. The shortcomings of these programs are that consumers lost trust in the outside companies to fulfill their responsibilities.
Another mortgage program with related art are home equity lines that can be accessed using a credit card. In this program, First Union offers a Prime Equity Line, and Washington Mutual offers the ‘On The House’ Platinum Visa card that allows the consumer the ability to borrow money from the home equity line that is a second mortgage secured by the property. The interest rate charged on this card, which is secured credit rather than unsecured credit, is usually lower than the normal interest rates charged on unsecured credit cards. It is possible that because the card borrows money from the home equity line for unpaid balances, the interest payment would be tax deductible. The shortcomings of this program are that the mortgage debt, rather than shrinking, is actually increasing. Also, the cardholder must have a home equity line with this institution and home equity lines may not be available in the state the consumer lives in. Also, since the card is secured by the property, not unsecured like most credit cards, the cardholder may loose the property in the event of default on the credit card debt.
Another related art business practice involves the allocation of assets. American Express has the ‘Asset Allocation Tool’ that queries consumers via their web site on their present financial situation and preferences. This yields a basic recommended investment portfolio mix. Should the consumer wish a more detailed analysis, there is available through American Express financial advisors an advanced investment portfolio mix. There is even a section on Educational Goals, meant to plan for college expenses. The shortcomings of this service are that the recommendations may yield less than desired results because certain investments do not guarantee returns. Another is that this is a time consuming process, and at the end, the results are guesses that are not guaranteed.
Of course there are many patents reflecting the aforementioned drive to market cards. For example, U.S. Pat. No. 6,018,718 (Walker) provides and manages a customized reward offer to a holder of a financial account. Here, a consumer with a financial account prioritizes where the rewards from credit cards will go based on performance targets. The shortcomings are that the consumer must have a financial account, and even with one, the consumer must then spend time developing performance targets.
U.S. Pat. No. 6,018,718 (Walker) provides for the mining of consumer financial account information and based on performance targets selecting which reward offer suits a particular consumer.
U.S. Pat. No. 5,466,919 enables a credit cardholder to make donations to cardholder-selected charities any time a transaction occurs.
U.S. Pat. No. 5,911,135 (Atkins 1) provides a personal financial management program that can allocate funds to maximize returns based on the consumer's personal financial targets. For example, the central structural element of the financial account is the client's mortgage, and this allows a client to reallocate funds normally intended to pay the principle on a mortgage to other investments or U.S. Pat. No. 5,911,136 (Atkins 2) is a system for prioritized operation of a personal financial account comprising liabilities and investments. U.S. Pat. No. 5,864,828 (Atkins 3) is another financial planning management system, and U.S. Pat. No. 5,884,285 (Atkins 4) is a system for managing financial accounts by reallocating funds among accounts. U.S. Pat. No. 5,852,811 (Atkins 5) is a method for managing financial accounts by a preferred allocation of funds among accounts, and U.S. Pat. No. 5,875,437 (Atkins 6) is a system for the operation and management of one or more financial accounts through the use of a digital communication and computation system for exchange, investment, and borrowing.
U.S. Pat. No. 5,745,706 (Wolfberg) is a system and related equipment for spending and investment account management.
U.S. Pat. No. 5,991,736 (Ferguson) provides a patronage incentive award system incorporating retirement accounts and method thereof. Pays into the consumer's retirement account.
U.S. Pat. No. 4,750,119 (Cohen) discusses a purchasing system with rebate feature . . . the base patent for rebates from transactions. Also allows for a guarantee of future rebates to be issued by an insurance company selling annuity contracts.
U.S. Pat. No. 5,202,826 (McCarthy) establishes a centralized cash value accumulation system for multiple merchants in which there is an accumulating of cash value based on transactions for cash rebates, and U.S. Pat. No. 5,117,355 (McCarthy) is much the same as above, as is U.S. Pat. No. 5,287,268 (McCarthy).
U.S. Pat. No. 5,621,640 (Burke) provides an automatic philanthropic contribution system. At a sales establishment, product prices are entered into a cash register and when a product is purchased, the difference between the amount paid and the price is automatically paid to a charity.
U.S. Pat. No. 5,537,314 (Kanter) somehow integrates reward systems with multi-level marketing programs.
U.S. Pat. No. 5,970,480 (Kalina) provides rewards from transactions go towards purchase of mutual funds and/or investment vehicle of cardholder choice. U.S. Pat. No. 5,025,372 (Burton) provides a system in which rebates directly to the credit instrument (credit card).
Another related art business practice involves ‘bidding’ for mortgages. Two popular mortgage ‘bidding’ businesses are LendingTree.com and priceline.com. LendingTree.com requires the consumer to give them the appropriate information and they respond with loans that may or may not appeal to the consumer. Priceline.com asks the consumer to state the rate and terms the consumer wishes, and they try to match that or give them four other options to choose from. The shortcomings of these businesses are that the consumer must enter their own information and wait to get a response. The process can be cumbersome and time consuming. Loan options are limited to those that work with these businesses. Also, the next time the consumer wants a loan, they must go through the process again. This creates a redundancy in work and in fees.
As part of the previous related art, is the practice of originating and closing mortgages and packaging them for sale. In most cases, there is a standard mortgage package that must be created to process, underwrite, close, and sell the mortgage. This package consists of many separate parts from the appraisal to income verifications to surveys and title insurance. The shortcomings of the package described are that they are packages of paperwork that must be collected from different entities and systematically assembled. They are bulky and difficult to store and manage. Should a consumer ever wish to refinance this mortgage, in almost all cases and entirely new package must be assembled even though most of the disparate parts are the same as in the previous package.
Also relating to this is the current MP3 trend facilitated by the creation of e-files that can easily transfer music from one computer to another. In this, music is recorded digitally, compressed, and placed in an e-file that other listeners can access either through a network like Napster's or through one like Gnutella's. These applications are called ‘peer-to-peer’ file sharing. The shortcomings of this are that they deal strictly with the music industry and this technology is for compressing audio. Also, the network is geared for sharing these files between listeners and not necessarily for marketing to those listeners. Also, any marketing that can be done between listeners and companies doesn't include interchangeable parts, which allows for a greater number of companies to be involved in marketing to this audience.
In sum, the industry has worked long and hard to sell cards, yet the known prior art has shortcomings that have left many inadequately addressed needs.